Arizona Explains Changes in Prime Contracting Transaction Privilege Tax
Friday, December 5th, 2014
The Arizona Department of Revenue recently released a tax notice explaining changes to how contractors will pay tax on materials.
On January 1, 2015 the structure of prime contractor classification of the Transaction Privilege Tax ("TPT") will change. This will change how and when tax is paid on materials purchased by contractors.
For the new law, a "prime contractor" is a person who performs, coordinates, or supervises other contractors while they complete modification projects. A "contractor" is a person or organization that agrees to modify any building or structure for development or improvement and includes subcontractors and specialty contractors. A "modification" is any construction, improvement, movement, wreckage, or demolition activity. Modifications do not include maintenance, repair, replacement, or alteration activities.
A prime contractor will be able to purchase materials for modification contracts tax-free. These materials will be subject to tax at the time of use instead. However, materials purchased to complete maintenance, repair, replacement, and alteration contracts will be subject to sales tax at the time of purchase. A prime contractor that hires subcontractors without TPT licenses on a modification project will be able to get a project-specific exemption certificate for those sub-contractors. This will allow those sub-contractors to buy materials and pay tax as if they were prime contractors.
If a contract has "de minimis" modification activities, Arizona will treat the contract like a maintenance contract. For these contracts, the contractor will pay tax on the purchase of materials rather than the use of the materials. Modification activities are "de minimis" if the receipts from those activities are less than 15% of the total receipts from the contract. Change orders do not change the taxability of the original contract because they are considered separate contracts.
Prime contractors must get TPT licenses under the prime contracting classification. This license will allow the holder to purchase materials without paying sales tax. A contractor who does not perform any modification projects is not required to get a TPT license.
Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.
TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.
TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.
Please visit TTR on the web at www.ttrus.com or call 866.578.8193.
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